Two weeks ago, I was fortunate to be able to attend the 52nd Heckerling conference on Estate Planning. This is a conference where the best & brightest minds in estate planning deliver tips & strategies on the latest planning techniques. It was even more fortuitous for me, as a first-time attendee, that this year’s conference was all about the new tax code which went through a complete overhaul late last year.
This new law informally referred to as the Tax Cuts and Jobs Act of 2017 is also officially known as:
“H.R. 1 – An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.” It was numbered Public Law 115-97.
Heckerling did not disappoint! As Jonathan Blattmacher, the guru of estate planning put it (and I summarize), the change up of the tax environment presents a unique & exciting opportunity to those attorneys who may want to master these new laws and gain a competitive edge over the older and more experienced attorneys who had become comfortable with the old tax regime. Here is what I learned:
- • The new mantra is income tax savings rather than estate tax savings. While moderately wealthy and high net worth (“HNW”) clients still need to keep thinking about estate tax savings & creditor protection with 2026 in mind, for the vast majority whose assets are well below the newly increased thresholds ($11.18m exemption per person; $22.36m for a married couple), we ought not to be too concerned about estate tax savings but rather we need to focus on income tax reduction techniques;
- • Having said that, the estate tax conversation has not completely gone away for the moderately wealthy and HNW clients who need to plan quickly and prudently in light of the very real possibility that the law may very well in fact sunset in 2025 (or earlier if there is a legislative change). A relatively young client with $5m in his or her estate right now can easily be looking at an estate over $10m estate in 2025 which in turn, translates to a sizeable taxable estate especially if the exemption limits drop considerably;
- • Roth IRAs should be looked at as the golden goose that keeps on giving. The compounding interest and income tax free nature upon withdrawals makes Roth IRAs not only attractive but critical to amassing wealth, says Natalie Choate the Queen of Retirement Accounts. More importantly, there are several tips & techniques that can be taken advantage of, if your income is over the income cap for Roth contributions;
- • The lack of being able to take State and Local Tax (or SALT) deductions on our federal taxes is concerning to those of us living in high income tax states; however, the new law also presents interesting opportunities to get around this problem, especially with the use of nongrantor trusts;
- • Conversions from partnerships or S corps to C corps for some individuals or businesses may make practical sense for some businesses to get the lower effective tax rate for corporations; having said that, this needs to be explored careful since the conversion could be a taxable event as well as irrevocable; and
- • Businesses that are providing a service (i.e. doctors, lawyers and accountants, but interestingly not engineers or architects), don’t enjoy the same benefits as regular corporations under this new tax law; but here too, there may be some planning techniques that could be utilized to bypass this restriction.
All in all, it was definitely an exciting time to be part of this conference this year. The strategies we had been implementing for so many years need to be revisited and changed based on the current tax climate. Our earlier conversations that focused on the gift & estate tax will now need to include capital gains, cost basis and income tax planning as well. And finally, now more than ever, it is important for all us – the financial planner, the CPA and the estate planning attorney – to put our heads together to provide a comprehensive team approach to a client’s wealth building and preservation goals. These plans need to maximize income tax efficiency, utilize the available estate & gift tax exemptions prudently and at the same time fulfil the client’s personal succession planning goals.
 The new tax law is scheduled to sunset in 2025